U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A3
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1995
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/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 0-15929
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DATATREND SERVICES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 11-2726109
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1515 Washington Street, Braintree, MA
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(Address of Principal Executive Offices)
(617) 691-1200
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(Issuer's Telephone Number, Including Area Code)
BABYSTAR INC.
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the last practicable date: Common Stock, $0.01 par
value 4,712,795 shares at May 15, 1995
Traditional Small Business Disclosure Format (check one):
Yes X No
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<PAGE 1>
FORM 10-QSB/A3 QUARTERLY REPORT
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BABYSTAR, INC. AND SUBSIDIARY
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INDEX
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PAGE
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Part I: FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 3
Consolidated Statements of Operations -Three Months
Ended March 31, 1995 and 1994 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1995 and 1994 6
Notes to Financial Statements 7-8
Item 2.
Management's Discussion and Analysis of Financial
Conditions and Operations 9
Part II: OTHER INFORMATION
Items 1-6. 10
Signatures 11
<PAGE 2>
DATATREND SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1995 1994
(Unaudited)
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 66,310 $ 2,015
Accounts receivable 1,523,778 2,073,213
Inventories 5,847,949 3,286,875
Note receivable 150,000
Other current assets 185,591 493,632
-------------------------
Total current assets 7,773,628 5,855,735
PROPERTY AND EQUIPMENT, AT COST
Furniture, equipment, and leasehold
improvements 154,511 138,373
Less accumulated depreciation (68,772) (54,072)
-------------------------
Property and equipment, net 85,739 84,301
OTHER ASSETS
Organizational costs 44,479 9,670
Other 7,396 1,600
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Total other assets 51,875 11,270
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$7,911,242 $5,951,306
=========================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Note payable, bank $1,675,820 $ 416,517
Accounts payable 3,455,033 2,727,322
Accrued expenses and other accrued liabilities 503,912 308,455
Current portion of capital leases obligations 12,770 12,382
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Total current liablilities 5,647,535 3,464,676
OTHER LIABILITIES
Capital lease obligations, net of
current portion 14,362 17,809
Note Payable, stockholder 1,743,567
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14,362 1,761,376
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share -
20,000,000 authorized; 4,712,795 shares issued
and outstanding at March 31, 1995 and 1,000
shares authorized, issued and outstanding
at December 31, 1994 47,138 10
Additional paid-in capital 2,343,606
Retained earnings(deficit) (141,399) 725,244
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Total stockholders' equity 2,249,345 725,254
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$7,911,242 $5,951,306
=========================
</TABLE>
See Notes to Financial Statements.
<PAGE 3>
DATATREND SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
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1995 1994
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<S> <C> <C>
SALES $5,322,228 $6,253,342
COST OF SALES 4,664,748 5,384,554
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GROSS PROFIT 657,480 868,788
OPERATING EXPENSES 809,961 612,816
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OPERATING INCOME(LOSS) (152,481) 255,972
OTHER INCOME (EXPENSE);
Rental/Other income 6,191 4,914
Interest income (expense) (47,835) (109,084)
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Total other income (expense) (41,644) (104,170)
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INCOME BEFORE PROVISION FOR INCOME TAXES (194,125) 151,802
PROVISION FOR INCOME TAXES 13,420 0
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NET INCOME(LOSS) FROM CONTINUING OPERATIONS (207,545) 151,802
INCOME(LOSS) FROM DISCONTINUED OPERATIONS (67,759)
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NET INCOME (LOSS) $ (275,304) $ 151,802
=========================
Weighted average number of shares 3,142,197
Earnings (loss) per share:
Continuing operations $ (0.07)
Discontinued operations $ (0.02)
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Net $ (0.09)
==========
</TABLE>
See Notes to Financial Statements.
<PAGE 4>
DATATREND SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (275,304) $ 151,802
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating acitvities:
Depreciation and amortization 16,340
Changes in assets and liabilities:
Accounts receivable 399,435 152,942
Inventories (2,561,074) 260,678
Other current assets 308,041 56,373
Accounts payable 727,711 915,343
Other current liabilities 195,457 (39,850)
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Total adjustments (914,090) 1,345,486
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Net cash provided by (used in)
operating activities (1,189,394) 1,497,288
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (16,138) (17,181)
Other assets (42,245)
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Net cash (used in) investing activities (58,383) (17,181)
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable, advances 7,430,345 7,929,587
Note payable, payments (7,914,609) (9,866,425)
Payments on capital lease obligations (3,059)
Shareholder distribution (137,000) (227,920)
Purchase of subsidiary treasury stock (210,000)
Proceeds from business merger 2,146,395
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Net cash provided by (used in)
financing activities 1,312,072 (2,164,758)
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NET INCREASE (DECREASE) IN CASH 64,295 (684,651)
CASH, BEGINNING OF PERIOD 2,015 689,747
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CASH, END OF PERIOD $ 66,310 $ 5,096
===========================
</TABLE>
See Notes to Financial Statements.
<PAGE 5>
DATATREND SERVICES. INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
MARCH 31, 1995
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In Treasury Earnings
Shares Amount Capital Stock (Deficit) Total
------ ------ ---------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance-December 31, 1994 1,000 $ 10 $ 725,244 $ 725,254
Distribution to S-Corporation Shareholders (137,000) $ (137,000)
Purchase of Treasury Stock (210,000) $ (210,000)
Retirement of Treasury Stock (500) (5) 210,000 (210,000) $ (5)
Termination of S-Corporation Status 244,339 (244,339) $ 0
Business Acquisition 3,512,295 35,133 2,099,267 $2,134,400
Additional Shares Issued in Connection
with Merger 1,200,000 12,000 $ 12,000
Net (loss) for the 3 months
ended March 31, 1995 (275,304) $ (275,304)
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Balance-March 31, 1995 4,712,795 $47,138 $2,343,606 $ 0 $ (141,399) $2,249,345
=======================================================================
</TABLE>
See Notes to Financial Statements
<PAGE 6>
BABYSTAR INC. AND SUBSIDIARY
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NOTES TO FINANCIAL STATEMENTS
Note 1 - The Company
In January of 1995, Datatrend, Inc., through a reverse acquisition, was
merged with Babystar, Inc., a publicly held company (the "Merger"). At that
time Babystar, Inc. no longer had any operations, having sold its operating
subsidiary in November 1994. Babystar's net loss for the two months ended
March 31, 1995 is included in the company's results for the three month's
ended March 31, 1995.
In connection with the Merger, certain former Datatrend, Inc. shareholders
received 1,200,000 shares of the Company's common stock, and may receive an
additional 1,200,000 shares if after tax earnings reach certain levels.
The Company also has 4,265,200 stock warrants and options outstanding, which
have exercise prices between $.5625 and $4.69 per share, with expiration
dates between July 1997 and June, 1998.
Note 2 - Summary of Significant Accounting Policies
Inventories
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Inventories, which consist primarily of computer hardware, are stated at the
lower of cost or market. Cost is determined utilizing the first-in, first-
out (FIFO) method.
Property and Equipment
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Items capitalized as property and equipment are stated at cost.
Depreciation is computed using accelerated methods calculated to depreciate
the cost of assets over their estimated useful lives.
Earnings(Loss) per Share
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Earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding. Earnings per share do not give
effect to the outstanding warrants for the purchase of shares of common
stock as these warrants would be antidilutive.
Adjustments Included in Preparing Interim Financial Statements Pursuant to
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Item 310(b) Instruction 2 of Regulation S-B
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The financial statements as of March 31, 1995 and for the three month period
ended March 31, 1995 are unaudited. Pursuant to Item 310(b) Instruction 2
of Regulation S-B, in management's opinion, all adjustments necessary in
order to make the financial statements not misleading have been made.
Results of operations for the three months ended March 31, 1995, are not
necessarily indicative of operations for the full year ending December 31,
1995.
<PAGE 7>
Note 3 - Note Payable, Bank
The Company has a line of credit agreement with a financial institution
which permits borrowing of up to the lesser of $2,500,000, or 70% of
eligible accounts receivable plus 40% of eligible inventory. The line of
credit bears interest at prime rate plus 1.25% and is collateralized by
substantially all of the assets of the Company.
Note 4 - Lease Commitments
The Company is party to a lease for office premises in New York pursuant to
a lease expiring in July 1997. Since the Company no longer anticipates the
use of these offices and has terminated all employees and business
activities at said premises, the Company accrued the sum of $72,000 as of
December 31, 1994, representing the approximate present value of all future
payments due pursuant to that lease. Rental payments are charged in
reduction of that accrual as they are paid.
The Company leases an office and warehouse facility under an operating
lease which expires in May 1996. Minimum annual rentals through expiration
are as follows:
Year ending December 31, 1995 $161,720
Year ending December 31, 1996 $ 63,780
Note 5 - Contingent Stock Issuance for Acquisition of Datatrend, Inc.
Effective On February 1, 1995, the Company acquired all of the capital stock
of Datatrend, Inc. ("DTI") by merging a wholly owned subsidiary of the
Company into DTI. Pursuant to the terms of the Agreement and Plan of Merger
dated January 31, 1995, in exchange for the merger, the holders of DTI stock
received 1,200,000 shares of the Company's Common Stock as well as the right
to receive an aggregate of 1,200,000 additional shares if certain earnings
tests are met over a period of approximately two years.
<PAGE 8>
BABYSTAR INC. AND SUBSIDIARY
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Working Capital and Liquidity
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Cash provided (used) in operations for the quarters ended March 31, 1995 and
1994 was ($914,090) and $1,345,486 respectively. Cash was provided by
operations in 1994 by expanding the use of vendor credit, reducing
inventories and accounts receivables. The use of cash in 1995 was primarily
for the purchase of inventory, some of the purchases were offset with
additional vendor credit. The increase in inventory in 1995 can be
attributed to seasonal sales cycles and availability of inventory for
purchase.
Cash provided (used) by investing activities for the quarters ended March
31, 1995 and 1994 was ($58,383) and ($17,181). A majority of the cash used
by investing activities in 1995 was related to the costs of the merger that
were accounted for as other assets.
Cash provided (used) by financing activities for the quarters ended March
31, 1995 and 1994 was $1,312,072 and ($2,164,758) respectively. In the
period ended March of 1994 the Company used cash from operations and cash on
hand to pay down asset based lines of credit and shareholder loans, using
cash in this manner allowed the company to avoid unnecessary interest
charges on these debts. In the quarter ended March 31, 1995 cash from
financing activities increased primarily because of the proceeds from the
merger. The capital contribution significantly improved the Company's equity
position.
Based on the increase in equity from the merger, the increased vendor credit
and the existing line of credit from a bank, management feels that the
company has sufficient capital to meet its short and long term capital
needs.
Results of Operations
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Effective On February 1, 1995, the Company acquired all of the capital stock
of Datatrend, Inc. ("DTI") by merging a wholly owned subsidiary of the
Company into DTI. DTI is a Massachusetts corporation incorporated under the
laws of the Commonwealth of Massachusetts in 1993. DTI is engaged in the
wholesale and retail distribution of new, used and refurbished computer
hardware and components. Substantially all of the Company's business
operations are currently conducted by its wholly-owned subsidiary, DTI. For
financial reporting purposes, the Merger of Babystar, Inc and DTI had been
treated as if DTI acquired Babystar, Inc. Any references to the Company made
in this management discussion and in the accompanying financial statements
shall apply to Datatrend, Inc or DTI. DTI survives as the sole operating
subsidiary of the company.
The Company's revenues and expenses from operations (exclusive of losses
from discontinued operations) for the three months ended March 31, 1995,
reflect the operations of DTI and Datatrend, Inc. The revenues and expenses
for the three months ended March 31, 1994, reflect the business operations
of the Datatrend, Inc.
<PAGE 9>
Sales for the three months ended March 31, 1995 were $5,322,228, down 14.9%,
gross margins fell from 13.9% to 12.4%, and operating costs are up 32.2%
compared with the same period one year earlier. Management attributes this
to several factors, the primary cause is deemed to be the fact that the
management of DTI devoted a significant amount of its efforts during the
first part of this quarter to the transaction involving the merger, as a
result, sales and operational aspects of the Company were adversely
affected. The Company also believes that the business for the first quarter
involves certain seasonal fluctuations affecting its sales activities and
expects that sales will increase in future quarters. There can be no
assurance that these operations will in fact improve or that sales will in
fact increase.
<PAGE 10>
BABYSTAR, INC. AND SUBSIDIARY
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Part II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any material legal proceedings.
Item 2. Changes in Securities
On February 1, 1995 the Company acquired DTI. Pursuant to the terms of the
Agreement and Plan of Merger dated January 31, 1995 (the "Agreement"), in
exchange for the merger, the holders of DTI stock received 1,200,000 shares
of the Company's Common Stock as well as the right to receive an aggregate
of 1,200,000 additional shares if certain earnings tests are met over a
period of approximately two years.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders in the first quarter
of 1995.
Item 5. Other Information
None.
Item 6. Reports of Form 8-K
A report on Form 8-K was filed on February 14, 1995 reporting a change in
control of management and the acquisition of material assets.
A report on form 8-K was filed on April 15, 1995 reporting financial
information for the subsidiary acquired by the Company effective February 1,
1995.
<PAGE 11>
BABYSTAR INC. AND SUBSIDIARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
BABYSTAR INC.
/s/ Mark A. Hanson
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Mark A. Hanson
President and Chief Executive Officer
Chief Financial Officer
<PAGE 12>
